A competency-based salary structure is based on employee proficiency and expertise instead of factors such as seniority or tenure. Job competency refers to the level at which the employee performs, usually in a field that requires specialized experience, knowledge or expertise. Salary structures based solely on job competency have their advantages and disadvantages and are useful for setting wages for numerous occupations.

Case Study

The salary structure in the nursing field is an ideal example for illustrating how employers compensate employees based on job competency. A sketch of the nursing field includes the following positions from lowest level of education, credentials and licensing to highest: certified nursing assistants, licensed practical nurses, registered nurses and physician assistants. Education, credentials and licensing factor into the job competency and salary differences for various roles in the field of nursing. By way of illustration of competency-based wages, according to the U.S. Bureau of Labor Statistics, median wages for nursing occupations as of May 2010 were nurse aides, $25,130; licensed practical nurses, $41,360; registered nurses, $67,720, and physician assistants, $87,140.

Drawbacks

Salaries for employees with lengthy tenure or long-term employees may be constrained by rigid formulas used to determine salary levels. There may be limited authority to make wage adjustments based on an employee's superior performance. Competency-based salary structures also may be difficult to adjust in the event of wage reductions from economic downturn. Competency-based salary structures foster a sense of confidence that can easily turn into entitlement. Employees who essentially have been guaranteed a certain wage based on their job competency, knowledge and expertise become complacent, and their performance ratings may reflect lack of motivation to perform at higher levels.

Benefits

A competency-based salary structure is easy to construct. For companies that don't have a dedicated human resources department or expert compensation specialists, a competency-based salary structure is one of the simplest compensation structures to implement. The structure and reliability are benefits for small business owners who are not yet accustomed to wage setting. Salary tables for competency-based salary amounts are easily accessible in virtually every field and industry.

Methods

HR specialists generally access salary information using public-sector and private-sector salary information. Online resources include the U.S. Bureau of Labor Statistics, which provides employers with salary data that can be adjusted for specific job titles, occupation, geographic area and industry. In addition, professional associations and research organizations produce salary surveys for wage-setting purposes as well as to determine whether the employer is paying competitive wages. Industry groups, such as the American Nurses Association, the American Bar Association and other groups to which employees and employers subscribe have information about employment trends, labor market conditions and other factors that affect employee compensation. In-house compensation specialists sometimes contact professional networks and colleagues who work for other businesses to obtain information about competitors' wages.

About the Author

Ruth Mayhew began writing in 1985. Her work appears in "The Multi-Generational Workforce in the Health Care Industry" and "Human Resources Managers Appraisal Schemes." Mayhew earned senior professional human resources certification from the Human Resources Certification Institute and holds a Master of Arts in sociology from the University of Missouri-Kansas City.